With the S&P 500 9% off its 52-week high, there are a lot of good stocks that investors can buy for cheap now.
However, there aren’t many better than General Motors (GM) stock, a company with exposure to one of the true gems of the global economy that’s rolled into a cheap, safe stock.
And looking ahead, there are more than enough catalysts to take GM stock from boring to explosive.
During 2015, General Motors sold 9.8 million vehicles for its third consecutive year of record sales. GM is quickly gaining on Toyota’s (TM) 10.15 million vehicles, establishing itself as a manufacturer with immense volume.
On top of record sales, GM is on pace for its best year of free cash flow in its history, having finally reached an effective cost structure. While it still has $57 billion in debt, the company’s debt-to-assets ratio is still well below 35% — an industry best.
That said, GM stock is trading at less than 10 times trailing 12-month free cash flow, and it pays a dividend yield of 4.8% at its current price. Given that it is consistently producing record annual sales combined with its valuation and strong dividend, there’s no question that GM stock is a great investment opportunity.
Why GM Stock Could Take Off
Admittedly, General Motors is expected to grow total revenue just 2% this year, slightly slower than GDP. Therefore, it is a somewhat boring company, and for that reason, it isn’t going to support the stock multiples of a Tesla (TSLA).
Thankfully, General Motors is changing quickly, becoming much more exciting. Specifically, General Motors is involved in three different projects that could ignite GM stock price and spark big gains.
First is the acquisition of Sidecar. This is a business that was shut down in December due to competition from the likes of Uber. But, with GM’s backing and marketing dollars, the outcome for Sidecar may be different this time around, maybe even a legitimate competitor to Uber. Keep in mind that Uber’s latest funding valued it at $62.5 billion — more than GM’s $45 billion. Clearly, becoming competitive with Uber would have big implications for GM stock.
Second, GM launched Maven. This is a car rental program that allows consumers to rent General Motor vehicles. This is significant because it is a similar business model to Hertz (HTZ), but will likely utilize GM dealers and eliminates the retail purchase of vehicles for inventory. Thus, GM’s operating margin from Maven could be far higher than Hertz’s 6.5%; GM’s current margin is 4.5%.
Third, GM invested $500 million in Lyft to fund an ambitious new program that will aim to create driver-less taxis. In the days following this announcement, GM disclosed that it is accelerating its self-driving efforts to put the technology on the road — think Uber minus the cost of drivers.
What Does It Mean?
GM has its enormous, stable business that is already valued at a discount, not to mention these three huge projects in the works. Best of all, it only needs one of those projects to be a success in order to spark enormous gains in GM stock.
If Sidecar becomes a legitimate competitor to Uber, GM stock could very well double. If Maven replicates Hertz without the costs of retail locations and retail inventory costs, profits will soar. And if GM can really nail the driver-less car program … well, there’s no telling what that could mean in terms of investment value.
The bottom line is that GM is a great investment on its own right now. And if any of these new projects are successful, much less all three, then expect accelerated stock gains and a much more valuable General Motors in the years ahead. Be sure to check out Wednesday’s GM earnings report for any clues as to how these projects are progressing.
As of this writing, Brian Nichols was long GM.
